American Water Reports Strong Second Quarter 2014 Results

Net income rose 7.9 percent for the quarter to $109.3 million, or
$0.61 per diluted common share.

Adjusted net income (a non-GAAP financial measure) totaled $112.3
million, or $0.63 per diluted common share, excluding the impact of
the Freedom Industries chemical spill in West Virginia, an increase of
8.6 percent from weather normalized second quarter 2013 EPS.

Company affirmed annual earnings guidance to be in the range of
$2.35 to $2.45 per share, with performance trending toward the upper
end of the range, assuming normal weather patterns for August through
the remainder of the year and excluding the impact of the Freedom
Industries chemical spill in West Virginia.

August 06, 2014 04:05 PM Eastern Daylight Time

VOORHEES, N.J.--(BUSINESS WIRE)--American Water Works Company, Inc. (NYSE: AWK), the largest publicly
traded U.S. water and wastewater utility company, today reported strong
results for the second quarter of 2014.

“Our mission is to provide clean, safe, affordable and reliable water
and water services to our customers. In my first three months as
President and CEO, I have been traveling throughout our service areas to
meet with our employees and see firsthand the hard work and commitment
they have to our customers and communities. This dedication is reflected
in our results for the second quarter,” said Susan Story, president and
CEO of American Water. “We achieved increases in revenues and earnings
per share growth, completed five additional regulated acquisitions
through August 4, continued strategic growth in our market-based
businesses, and found ways to be more efficient to mitigate impacts to
customers’ bills.”

For the three months ended June 30, 2014, the company reported net
income of $109.3 million, or $0.61 per diluted common share. Excluding
the one-time impact of the Freedom Industries chemical spill in West
Virginia, the company’s adjusted income (a non-GAAP financial measure)
for the three months ended June 30, 2014, totaled $112.3 million, or
$0.63 per diluted common share, compared to weather normalized adjusted
net income of $104.2 million, or $0.58 per adjusted diluted common
share, in the same quarter last year. For the six months ended June 30,
2014, net income was $177.4 million, or $0.99 per diluted common share,
compared to $158.9 million, or $0.89 per diluted common share, for the
same period last year. Excluding the one-time impact of the Freedom
Industries chemical spill in West Virginia, the company’s adjusted net
income (a non-GAAP financial measure) for the six months ended June 30,
2013 was $184.4 million, or diluted earnings per share (EPS) of $1.03
compared to weather normalized $161.8 million, or diluted EPS of $0.91
for the comparable period in 2013.

The company’s capital investments during the first six months of 2014
totaled approximately $387.9 million. The company anticipates investing
up to $1.1 billion in 2014, with the majority allocated to upgrading its
water and wastewater systems to ensure reliable service to customers.

Regulated Operations

For the three months ended June 30, 2014, American Water’s Regulated
Businesses’ revenues increased by $30.2 million, or 4.7 percent, as
compared to the same quarter in 2013. Operating revenues increased by
$64.6 million, or 5.3 percent, for the six months ended June 30, 2014,
as compared to the same period in 2013. The increase in revenues was
primarily due to rate authorizations and infrastructure and other
surcharges, as well as incremental revenues resulting from acquisitions,
most of which occurred in 2013.

The Regulated Businesses’ operation and maintenance (O&M) expense
increased $11.8 million, or 4.3 percent and $20.7 million, or 3.8
percent, for the three and six months ended June 30, 2014, respectively,
compared to the same periods in 2013. The higher costs are mainly due to
increased purchased water costs in the company’s California subsidiary,
costs associated with the Freedom Industries chemical spill in West
Virginia and higher customer uncollectible expense. These higher costs
were partially offset by lower employee-related costs.

The regulated entities showed continued improvement in their O&M
efficiency ratio (a non-GAAP measure). For the 12 months ended June 30,
2014, the adjusted O&M efficiency ratio was 37.7 percent, compared to
40.7 percent for the previous 12-month period.

“As we make needed investments to ensure the quality and reliability of
our water and service, we work hard to balance the cost of these
investments through our operational efficiency efforts,” said Story. “In
addition, we work with the utility commissioners in our states to seek
regulatory mechanisms that mitigate the impact on our customers’ bills.”

In April, the company’s rate authorization in Iowa for an additional
$3.8 million in annualized revenues and the final annualized step
increase approved in New York of $1.2 million were put into effect. The
company’s request for an additional $3.7 million in infrastructure
surcharges in Missouri was approved and became effective May 30, 2014.
Also, on July 1, 2014, additional annualized revenue of $7.4 million in
infrastructure charges became effective in New Jersey. Also in July, a
settlement was reached with the Office of Ratepayer Advocates regarding
the company’s general rate case in California, which, if approved in
accordance with the settlement agreement, would provide $13.6 million in
additional annualized revenues for the first year of a three-year step
increase. The agreement is pending regulatory approval and is subject to
change.

As of Aug. 5, 2014, the company was awaiting final orders for general
rate cases in two states, including California, requesting $52 million
in total additional revenues. The extent to which requested rate
increases will be granted by the applicable regulatory agencies will
vary. All annualized revenue amounts are based on current usage.

In terms of regulated growth, from April 1 through June 30, 2014, the
company completed three acquisitions, adding approximately 700 customers
to its regulated footprint. From July 1 through Aug. 4, an additional
two acquisitions closed, adding approximately 430 more customers to the
company’s regulated footprint. Four additional pending acquisitions are
awaiting regulatory approval and/or financial close. The company also
continues to provide a reliable supply of water to the communities in
shale-enriched areas in Pennsylvania, as well as to multiple energy
companies, and currently has 40 points of interconnection in that area.

Market-Based Operations

The company’s Market-Based Businesses’ revenues increased by $4.6
million, or 5.8 percent, and $16.1 million, or 10.9 percent, for the
three and six months through June 30 2014, respectively, compared to the
same periods in 2013. The increase was mainly due to additional revenues
resulting from contract growth in the homeowner services business and
incremental capital project activities in the company’s military
services group, partially offset by decreases in revenue from
discontinued municipal and industrial contracts as compared to the
comparable quarter in 2013.

The Market-Based Businesses’ O&M expense increased $6.3 million, or 9.9
percent, and $12.9 million, or 10.5 percent, for the three and six
months ended June 30, 2014, respectively. Higher costs were primarily
due to an increase in operating supplies and services attributable to
construction project activities for military contracts.

American Water’s Market-Based Businesses footprint also continued to
grow. The company’s homeowner services business, American Water
Resources (AWR), expanded its service offerings into eight new states
since the beginning of 2014, and also launched its exclusive partnership
with Metro Water Services in Nashville in April. AWR currently has
nearly 700,000 customers and more than 1.3 million customer contracts,
and operations in 43 states and Washington, D.C.

Quarterly Dividend

On July 30, 2014, American Water’s Board of Directors declared a
quarterly cash dividend payment of $0.31 per share, payable on Sept. 2,
2014 to all shareholders of record as of Aug. 11, 2014.

On April 29, 2014, in recognition of the company’s performance, the
board of directors increased its quarterly cash dividend payment from
$0.28 per common share to $0.31 per common share, an approximate 11
percent increase, which was paid on June 2, 2014, to all shareholders of
record as of May 12, 2014.

2014 Earnings Guidance

American Water estimates its 2014 ongoing earnings to be in the range of
$2.35 to $2.45 per share. Management further states that the company’s
performance is currently trending toward the upper end of the range,
assuming normal weather patterns for August and through the remainder of
the year. This guidance excludes the impact of the Freedom Industries
chemical spill in West Virginia, which was estimated at $0.04 through
June 30, 2014. The company’s earnings forecasts are subject to numerous
risks and uncertainties, including, without limitation, those described
under “Forward-Looking Statements” below and under “Risk Factors” in its
annual and quarterly reports.

Non-GAAP Financial Measures

This press release includes a presentation of adjusted net income and
adjusted earnings per share (EPS). These items are derived from American
Water’s consolidated financial information but are not presented in its
financial statements prepared in accordance with U.S. generally accepted
accounting principles (GAAP). Adjusted net income and adjusted EPS are
defined, respectively, as GAAP income and GAAP diluted earnings per
common share excluding the one-time impact of the Freedom Industries
chemical spill in West Virginia and the estimated impact of weather in
the second quarter of 2013. These items constitute “non-GAAP financial
measures” under Securities and Exchange Commission (SEC) rules. These
non-GAAP financial measures supplement the company’s GAAP disclosures
and should not be considered an alternative to the GAAP measure.

Management believes that this adjustment provides the company and its
investors with an indication of American Water’s baseline performance
excluding items that are not considered to be reflective of ongoing
results. Management does not intend results excluding the adjustment to
represent results as defined by GAAP, and the reader should not consider
it as an alternative measurement calculated in accordance with GAAP, or
as an indicator of the company's performance. Accordingly, the
measurements have limitations depending on their use.

This press release also includes a presentation of adjusted O&M
efficiency ratio, which excludes from its calculation estimated
purchased water revenues and purchased water expenses, the allocable
portion of non-O&M support services costs, mainly depreciation and
general taxes, and the impact of the Freedom Industries chemical spill
as well as the estimated impact of weather in the second quarter of
2013. This item is derived from American Water’s consolidated financial
information but is not presented in its financial statements prepared in
accordance with U.S. generally accepted accounting principles (GAAP).
The item constitutes a “non-GAAP financial measure” under Securities and
Exchange Commission (SEC) rules. This non-GAAP financial measure
supplements the company’s GAAP disclosures and should not be considered
an alternative to the GAAP measure.

Management believes that the presentation of this measure is useful to
investors because it provides a means of evaluating the company’s
operating performance without giving effect to estimated purchased water
revenues and purchased water expenses as well as the allocable portion
of non-O&M support services costs, mainly depreciation and general
taxes, and the impact of the Freedom Industries chemical spill, which
involve items that are not reflective of management's ability to
increase efficiency of the company’s regulated operations. In preparing
operating plans, budgets and forecasts, and in assessing historical
performance, management relies, in part, on trends in the company’s
historical results, exclusive of estimated revenues and expenses related
to purchased water and the allocable portion of non-O&M support services
costs.

Set forth below are tables that reconcile the non-GAAP financial
measures to the most directly comparable GAAP financial measures.

Second Quarter 2014 Earnings Conference Call

The second quarter 2014 earnings conference call will take place on
Thursday, Aug. 7, 2014, at 9 a.m. Eastern Time. Interested parties may
listen over the Internet by logging on to the Investor
Relations page of the company’s website at www.amwater.com.

Following the earnings conference call, an audio archive of the call
will be available through Aug. 15, 2014, by dialing 1-412-317-0088 for
U.S. and international callers. The access code for replay is 10049534.
The online archive of the webcast will be available through Sept. 7,
2014, by accessing the Investor Relations page of the company’s website
located at www.amwater.com.

About American Water

Founded in 1886, American Water (NYSE: AWK) is the largest publicly
traded U.S. water and wastewater utility company. With headquarters in
Voorhees, N.J., the company employs approximately 6,600 dedicated
professionals who provide drinking water, wastewater and other related
services to an estimated 14 million people in more than 40 states and
parts of Canada. More information can be found at www.amwater.com.

Cautionary Statement Concerning Forward-Looking Statements

Certain statements in this press release are forward-looking statements
within the meaning of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements are predictions based on American Water’s current
expectations and assumptions regarding future events and may relate to,
among other things, its future financial performance, including
earnings, growth and portfolio optimization strategies, its ability to
finance current operations and growth initiatives, trends in its
industry, regulatory or legal developments or rate adjustments. Actual
results could differ materially because of factors such as the decisions
of governmental and regulatory bodies, including decisions to raise or
lower rates; the timeliness of regulatory commissions’ actions
concerning rates; changes in laws, governmental regulations and
policies, including environmental, health and water quality, and public
utility regulations and policies; the outcome of litigation and
government action related to the Freedom Industries chemical spill in
West Virginia; weather conditions, patterns or events, including drought
or abnormally high rainfall, strong winds and coastal and intercoastal
flooding; changes in customer demand for, and patterns of use of, water,
such as may result from conservation efforts; its ability to
appropriately maintain current infrastructure and manage the expansion
of its business; its ability to obtain permits and other approvals for
projects; changes in its capital requirements; its ability to control
operating expenses and to achieve efficiencies in its operations; its
ability to obtain adequate and cost-effective supplies of chemicals,
electricity, fuel, water and other raw materials that are needed for its
operations; its ability to successfully acquire and integrate water and
wastewater systems that are complementary to its operations and the
growth of its business, including, among other core growth
opportunities, concession arrangements and agreements for the provision
of water services in the unregulated shale arena; cost overruns relating
to improvements or the expansion of its operations; changes in general
economic, business and financial market conditions; access to sufficient
capital on satisfactory terms; fluctuations in interest rates;
restrictive covenants in or changes to the credit ratings on the
company’s current or future debt that could increase its financing costs
or affect its ability to borrow, make payments on debt or pay dividends;
fluctuations in the value of benefit plan assets and liabilities that
could increase its cost and funding requirements; migration of customers
into or out of its service territories; difficulty in obtaining
insurance at acceptable rates and on acceptable terms and conditions;
its ability to retain and attract qualified employees; cash impact if
the National Labor Relations Board order requiring it to provide back
pay to employees in connection with a dispute relating to its national
benefits agreements with unions representing Regulated Businesses
employees is upheld on appeal; labor actions including work stoppages
and strikes; the incurrence of impairment charges; and civil
disturbance, terrorist threats or acts, or public apprehension about
future disturbances or terrorist threats or acts.

For further information regarding risks and uncertainties associated
with American Water’s business, please refer to American Water’s annual,
quarterly and current SEC filings. The company undertakes no duty to
update any forward-looking statement.